What Happened Last Week
- Tariff Impacts: As earnings season rolls on, investors have found that tariff impacts on U.S. companies are mostly less severe than they feared.
- Trade Deals: The U.S. struck deals with Japan and the EU and extended the deadline for negotiations with China.
- Another All-Time High: The S&P 500 reached a new high against a backdrop of a low-liquidity summer trading environment.
What We’re Watching This Week
- Earnings Ahead: Four more Mag-7 companies report, as well as the oil majors and many consumer-facing companies.
- Eco Data: Government agencies will release a wave of data this week, ending with Friday’s jobs report. The Fed is expected to hold rates steady on Wednesday.
- Trade: The U.S. and China will continue trade deliberations in Sweden this week as the market focuses on which countries will strike deals ahead of Friday’s deadline.
Investment Management Team’s Views
The S&P 500 hit new all-time highs last Friday amidst short covering in lower quality names and some repositioning into the heart of earnings season. The Cboe Volatility Index® (VIX® Index) closed on Friday just above its year-to-date low, with short term realized volatility for the index at its lowest for the year. However, there has been some rotation in terms of style, size, and sectors – a typical feature of earnings season. The uncertainty of tariff impacts seem to be contributing to the rotation we have seen, but this churn has not affected the overall upward trend of the market.
Beyond last week’s earnings reports, the market received some big news on trade. Japan and the U.S. announced a trade agreement a few days after the Japanese elections, unleashing a torrent of optimism for developed international markets. Over the weekend, President Trump announced a trade deal with the EU to lower tariffs from 30% to 15% in exchange for European commitments to buy more American energy and military equipment. The market reaction to the news has been mixed so far. Looking ahead, the August 1 tariff “deadline” is quickly fading from investors’ collective consciousness with focus now turning to major trading partners like India and South Korea, who are yet to reach agreements. While the specific effects of these tariffs and trade deals on the U.S. economy will likely emerge later in the year, the current news of agreements and sustained optimism are expected to serve as a positive tailwind for the markets today.
This coming week is the biggest in terms of market events of the summer. Earnings season ramps into full swing this week with 40% of the S&P 500 reporting, including four Mag-7 companies (Microsoft, Meta, Apple, and Amazon), the oil majors, a group of retail darlings, and a host of consumer-facing names. Investors will again closely watch the reports of consumer goods companies for any additional information about how tariffs are rippling through the economy. For the tech giants, the bar appears to have been raised, and focus remains on the state of AI innovation, productivity improvements, future CapEx spending plans, and cash flows from other business segments to support huge AI investment. Investors will be closely watching Friday’s jobs report, but first up are the Q2 Gross Domestic Product (GDP) print, the Fed’s preferred inflation gauge, and a Fed meeting.
